The 10 Best Companies to Invest in Now
The undervalued stocks of high-quality companies are compelling investments today.
Investors have endured a lot of market uncertainty during 2022 so far. The market faces several risks today, including inflation, rising interest rates, and a possible recession.
During uncertain times, investors may want to own companies that offer some sense of certainty in terms of cash flows and company fundamentals. That’s where Morningstar’s Best Companies to Own list comes in. The companies that make up this list—127 in total—have significant competitive advantages, and we think those advantages are stable or growing. We believe the best companies have predictable cash flows and are run by management teams that have a history of making smart capital-allocation decisions.
But the best firms aren’t always the best stocks to buy at a given point in time. How much an investor pays to own a company—best or otherwise—is important, too. So here we’re focusing on the 10 best companies with the most undervalued stock prices today.
The 10 most undervalued stocks from our Best Companies to Own list as of Sept. 12 were:
Here’s a little bit about why we like each of these companies at these prices, along with some key Morningstar metrics. All data is as of Sept. 12, 2022.
The stock of the world’s largest dedicated contract chip manufacturer has struggled this year because of macroeconomic uncertainty and a sluggish smartphone outlook. However, we think these headwinds have provided an enticing entry point for stock investors: Taiwan Semiconductor’s stock trades 51% below our fair value estimate of $166. We foresee high-performance computing demand as the biggest growth driver in the next five years, says Morningstar analyst Phelix Lee—plus industrial and automotive demand remains strong despite a lukewarm consumer outlook.
Brewer Anheuser-Busch InBev has a vast global scale and regional density. The company has a history of buying brands with promising growth platforms and then expanding distribution while ruthlessly squeezing costs from the businesses, which contributes to its Morningstar Capital Allocation Rating of Exemplary. “AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators,” says Morningstar director Philip Gorham. We think the market has underappreciated AB InBev stock for a long while: The stock trades 43% below our fair value estimate of $90.
Although the resurgence in coronavirus cases has put pressure on the Chinese restaurant sector, we think Yum China, the largest restaurant chain in China, is being unduly punished: Yum China stock is 42% undervalued relative to our fair value estimate of $86. Morningstar senior analyst Ivan Su argues that there’s reason to be confident about restaurants such as Yum China (whose brands include KFC, Pizza Hut, and Taco Bell, among others) that have the scale to be aggressive on pricing in the near term; that provide customers greater access via robust digital ordering, delivery, and drive-thru options; and that boast healthy balance sheets.
Growth in Comcast’s cable business has slowed, and we expect it to continue to slow as more customers access fiber and wireless network alternatives. The falloff in Comcast stock suggests years of steep customer losses, which we don’t think is likely, says Morningstar director Mike Hodel. Comcast stock trades 41% below our fair value estimate of $60 today. The second quarter was a mixed bag, with zero net broadband customer additions. We think investors should focus instead on the company’s ability to generate strong cash flow and maintain a solid balance sheet despite lingering headwinds.
As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company’s innovative new product lineup and expansive list of patent-protected drugs create a wide Morningstar Economic Moat Rating, says Morningstar sector director Damien Conover. Shares of GSK are under pressure because of increasing concerns regarding legal cases related to a potential cancer side effect from the over-the-counter heartburn medicine Zantac, according to several news sources. We view the pressure as overdone, as we do not expect major legal settlements regarding the medicine. GSK stock trades about 40% below our fair value estimate of $54 today.
One of the leading credit bureaus in the United States, Equifax faces strong headwinds today as mortgage market weakness—and a subsequent decline in mortgage credit inquires—takes a toll. We nevertheless think the market is being overly harsh: Equifax stock trades 38% below our $320 fair value estimate. In fact, we think Equifax’s Workforce Solutions segment is differentiated and growing at a healthy clip, says Morningstar analyst Rajiv Bhatia, and we think the segment’s fundamentals are strong. It is now Equifax’s largest segment.
Veeva is the leading provider of cloud-based software solutions tailored to the life sciences industry, providing an ecosystem of products to address the operating challenges and regulatory requirements that these companies face. The company reported decent second-quarter results, but foreign currency exposure and macroeconomic headwinds will likely weigh on the stock price in the near term, says Morningstar’s Conover. Veeva stock trades about 34% below our fair value estimate of $275 today.
Zimmer Biomet is the leader in large joint reconstruction, and we expect demand for large-joint replacement to be solid, thanks to favorable demographics that include aging baby boomers and rising obesity, says Morningstar senior analyst Debbie Wang. The company has cultivated close relationships with orthopedic surgeons and therefore enjoys vendor loyalty, which has helped the company dig a wide economic moat rating. Zimmer plans to accelerate growth through innovative products and improved execution, adds Wang. Zimmer Biomet stock trades 32% below our fair value of $175.
Salesforce stock hasn’t been immune to the drubbing that the technology sector has experienced this year. While the enterprise cloud computing solution provider likely faces a dip in revenue growth below 20% at some point in the next few years, we think ongoing margin expansion will provide compound earnings growth of more than 20% for much longer. Salesforce has assembled a front-office empire it can build on for years to come, says Morningstar senior analyst Dan Romanoff. We expect the firm to continue to benefit from cross-selling and upselling, pricing actions, international growth, and continued acquisitions. “We believe Salesforce represents one of the best long-term growth stories in software,” Romanoff concludes. Salesforce stock is 31% undervalued relative to our $240 fair value estimate.
Masco stock is undervalued by 30%, according to our metrics. Masco, which manufactures a variety of home improvement and building products, has revamped its management team and business model during the past several years. Management has eliminated the company’s cyclical and least profitable business, cut costs, and firmed up the balance sheet, says Morningstar sector director Brian Bernard. Second-quarter results were solid, and we think the company is well positioned to navigate near-term uncertainty. We assign the stock a $75 fair value estimate.
You can review all of the companies on our Best Companies to Own list and dig into our methodology, which includes definitions for the key Morningstar metrics included in this article. Those with specific interests can drill down with our Best International Companies to Own, Best Sustainable Companies to Own, and Best Innovative Companies to Own lists, too.
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Susan Dziubinski does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.